London Stock Exchange's ambition to keep up in the consolidation of global
bourses has been dashed with the collapse of its planned merger with
Canada's TMX Group.

In an embarrassing setback for Xavier Rolet, LSE's chief executive, the two companies said that the proposed £4.2bn all-share merger is "highly unlikely" to achieve the required two-thirds majority approval at TMX's shareholder meeting, due to take place tomorrow.

The exchanges therefore said that they had agreed to "terminate" their merger agreement of February 9.

The failure of the much-vaunted LSE-TMX merger, which would have created a giant global financial powerhouse, came just hours before LSE shareholders were due to vote on the deal at an extraordinary general meeting.

That meeting, which will technically go ahead tomorrow, will be indefinitely adjourned.

LSE said that proxy votes received in relation to its shareholder meeting showed an "overwhelming majority" in favour of the recommended merger.

However TMX said that although a "majority" of its shareholder proxies voted in favour of the merger, the deal was unlikely to get the required two-thirds majority.

The move could prompt further accusations of protectionism in Canada. Last year, the Canadian government rejected miner BHP Billiton's proposed acquisition of rival Potash Corporation under the Investment Canada Act.

Last night Mr Rolet said that the was "clearly disappointed" that the deal will not proceed.

"We believe the merger would have been a unique opportunity for TMX Group shareholders to be partners in a truly international group, co-located in Toronto and London, focused on growth and opportunity," he said, adding that LSE is in "good shape and financially robust".

LSE shares closed up 29 at 956p today, before the announcement was made.

One large LSE shareholder said: "This is huge disappointment and questions will inevitably be raised about the sustainability of LSE as a stand-alone business. However, I don't think Rolet can be blamed - any problems the LSE suffer can be traced back to the previous management's failure to complete the LIFFE takeover in 2001."

In February, Mr Rolet heralded the deal as "the creation of a global exchange leader" which would create the fourth biggest group of bourses in the world. Shares in global exchanges soared as traders' anticipated a return to the so-called "borse wars" - a global bid battle that started in 2004 and saw the companies' valuations rise to record levels.

LSE and TMX's plans immediately flushed out talks between Deutsche Borse and NYSE Euronext to create the world's largest exchanges operator worth about $24bn (£14.9bn).

The LSE said it had secured the backing of the LSE's biggest investors from Dubai and Qatar.

In terminating the agreement TMX will pay a $10m (£6.4m) expense fee to LSE. It will pay an additional $29m if, within 12 months, it is bought by Maple Group, a Canadian consortium of banks.